POLITICAL AND LEGAL ENVIRONMENT OF BUSINESS

Commercial Risk

Cross-Cultural Risk

Risks In International Business

Currency Risk

Country Risk

COUNTRY(POLITICAL) RISK Exposure to potential loss or adverse effects on company operations and profitability caused by developments in a countrys political or legal environments. It could be due to :

Govt. intervention, red tape, corruption Lack of legal safeguards for intellectual property rights Legislation unfavourable to foreign firms Economic failures and mismanagement Social and political unrest and instability

Criteria for measurement of risk i.e. indicators of a risky situation:

Government debt Fiscal and monetary policy Political stability Corruption index

IRAQ ZINBABWE ARGENTINA

HIGH RISK >60%

MEXICO
CHINA SOUTH AFRICA MEDIUM RISK 20-40%

SOUTH KOREA

HONG KONG
SINGAPORE

LOW RISK <20%

POLITICAL SYSTEM
A SET OF FORMAL INSTITUTIONS THAT CONSTITUTE A GOVERNMENT

PLAYERS

GOVERNMENT POLITICAL PARTIES LEGISLATIVE BODIES LOBBYING GROUPS TRADE UNIONS OTHER POLITICAL INSTITUTIONS

LEGAL SYSTEM
A SYSTEM FOR INTERPRETING AND ENFORCING LAWS

PLAYERS

ENSURE ORDER IN COMMERCIAL ACTIVITIES RESOLVE DISPUTES PROTECT INTELLECTUAL PROPERTY TAX ECONOMIC OUTPUT

TYPES OF POLITICAL SYSTEMS AND THEIR BUSINESS LINKAGE

TOTALITARIANISM

COMMAND/CENTRALLY PLANNED ECONOMY

SOCIALISM

MIXED ECONOMY

DEMOCRACY

MARKET ECONOMY

CUBA SUDAN TOTALITARIANISM EQUATORIAL GUINEA

SOCIALISM

CHINA EGYPT INDIA VENEZUELA ROMANIA BOLIVIA

DEMOCRACY

AUSTRALIA JAPAN USA NEW ZEALAND CANADA

FREE

POLITICAL FREEDOM

NOT FREE
ECONOMIC FREEDOM

FREE

LEGAL SYSTEM
RULE OF LAW
THE EXISTENCE OF A LEGAL SYSTEM WHERE RULES ARE CLEAR, PUBLICLY DISCLOSED, FAIRLY ENFORCED, AND WIDELY RESPECTED BY INDIVIDUALS, ORGANISATIONS AND GOVERNMENT.

COMMON LAW AUSTRALIA UK USA INDIA PAKISTAN GHANA

CIVIL LAW TURKEY JAPAN MEXICO LATIN AMERICA

RELIGIOUS LAW
MIDDLE EAST NORTH AFRICA

SOCIALIST LAW RUSSIA CHINA UKRAINE KAZAKHSTAN TAJIKSTAN

MIXED SYSTEM

PUERTO RIC THAILAND BAHRAIN QATAR VIETNAM ETHIOPIA

Who are the actors in political and legal systems

Government International organisations viz. WTO, IBRD,IMF Regional economic Blocs viz NAFTA, SAFTA EU Special interest groups viz OECD, OPEC, labour organisations, customers, minority groups Competing firms

TYPES OF COUNTRY RISKS

RISK PRODUCED BY POLITICAL SYSTEM

RISK PRODUCED BY LEGAL SYSTEM

RISK ARISING FROM HOST COUNTRY

RISK ARISING FROM HOME COUNTRY

Types of country risk produced by the political system

Government takeover of corporate assets Embargoes and sanctions Boycotts against firms and nations War, insurrection and revolution Terrorism

Types of country risk produced by legal system

Country risk arising from host country legal environment: Foreign investment laws Controls on operating forms and practices Marketing and distribution laws Laws regarding income repatriation Environmental laws Contract laws Internet and e-commerce regulations

Country risk arising from home country legal environment (extra-territoriality): Foreign corrupt practices act ,1977 Antiboycott regulations Accounting and reporting laws Transparency in financial reporting Ethical values and practices

MANAGING COUNTRY RISK

Proactive environmental scanning Strict adherence to ethical standards Allying with qualified local partners Protection through legal contracts Safeguarding intellectual property rights